Is USAID Mainly Serving U.S. Interests?

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Written by CEPR

Published: 19 March 2013

An op-ed in Bloomberg Businessweek yesterday lays out the case for USAID reform, highlighting the case of contractors in Haiti (and citing this blog) as an example. The piece, by Charles Kenny of the Center for Global Development, also examines the politicized nature of USAID practices. Kenny writes:

When it comes to buying friends at the United Nations, or buying crops in the Midwest, or creating jobs around the Capital Beltway, the U.S. foreign aid system is a paragon of effectiveness. Take the goal of buying friends. Eric Werker, a Harvard Business School associate professor, and Ilyana Kuziemko, now a Columbia Business School associate professor and Harvard Ph.D., estimated in a 2006 Harvard paper that countries rotating onto the UN Security Council were likely to see their U.S. aid increase by 59 percent. The aid then fell as the countries finished their terms. In a 1999 study, Illinois State University’s T.Y. Wang found that U.S. aid successfully affects UN voting patterns on issues vital to America’s national interests.

It is notable that the fifth largest USAID vendor is the government of Pakistan, currently a U.N. Security Council member. (The top four vendors – as September 30, 2012 – were the World Bank, the U.N. World Food Program, Chemonics (whose work in Haiti we have examined on this blog), and John Snow, Inc.)

The U.S. food aid program, for instance, purchases about $1 billion worth of American crops a year. It spends roughly an additional $1 billion transporting the crops overseas, in most cases using U.S.-flagged ships.

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Economics professors Nathan Nunn of Harvard and Nancy Qian of Yale demonstrated in a 2010 paper that what determines the size of U.S. food aid shipments isn’t recipient need, but the size of the U.S. crop. And about half the funding is used on shipping. That same money could buy supplies in local markets and help farmers in developing countries.

Anthropologist and well-known critic of past Haiti aid practices Timothy Schwartz has detailed the pitfalls from food aid monetization in his book Travesty in Haiti and elsewhere. Schwartz also noted that USAID and U.N. World Food Program shipments of grains to Haiti often have had a negative impact on Haitian agriculture partly because of the timing of the shipments. He noted several cases in which food was shipped to Haiti during Haiti’s harvest while such assistance was lacking in the Haitian off-season – the exact opposite of when food assistance should be delivered to both maximize the benefit to Haitian recipients and to help foster Haitian agriculture.

As Kenny notes, rather than use USAID funds to purchase crops from Haitian farmers, USAID relies on shipping U.S. crops, which undercuts the cost of local produce. The monetization practice has involved USAID provision of food supplies to aid NGO’s such as CARE, World Vision, Catholic Relief Services (the 16th largest USAID vendor) and ACDI/VOCA (34th largest vendor), which in turn are required to sell the grains on the local market. As we have previously noted, the practice has been criticized even by some of these implementing NGO’s, the U.S. Government Accountability Office and various aid experts.

Following the earthquake in 2010, we proposed that the international community instead use a tiny portion of its committed aid funds – 1.76 to 2.35 percent – to purchase the entire Haitian rice crop, which would have provided a boost to Haitian farmers while also delivering urgently needed food assistance. While there was some congressional interest in the idea, ultimately it did not get much traction, and USAID food aid has continued along the same path: following what is good for “farmers in Arkansas,” as former president Bill Clinton put it, rather than what is best for Haiti.

But the apparent prioritization of U.S. suppliers over foreign aid recipients should not come as a surprise; it is close to USAID’s central mission. USAID summarizes its activities as “developing partnerships with countries committed to enabling the private sector investment that is the basis of sustained economic growth to open new markets for American goods, promote trade overseas, and create jobs here at home.” [Emphasis added.] And in an October 2011 speech, then-Secretary of State Hillary Clinton suggested – as cited by Jonathan Katz – that “America should ‘put economics at the center’ of its foreign policy. In foreign relations, the question should always be ‘how will this affect our economic growth?’" [USAID is under the U.S. State Department.]

Kenny notes that the blame for USAID failures to serve the needs of Haiti and other countries overseas is “not the fault of the long-suffering staff of U.S. aid agencies, who can deliver very effective programs if given the chance,” but “The blame, instead, lies largely with members of Congress who complain that aid is wasted because it doesn’t lead to development, and then turn around and ensure hardly any assistance is designed or delivered with development as the primary goal.” He also notes the damaging impact of lobbyists that contractors and U.S. agriculture companies have had in hampering reform efforts:

USAID’s current contractors have hired lobbyists from the Podesta Group to combat procurement reform, and an alliance of domestic agricultural groups, shipping interests, and U.S. nongovernmental organizations that implement the food aid program are also resisting change.